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Cerberus Capital Plans
To Invest in Air Canada

By

Christopher J. Chipello Staff Reporter of THE WALL STREET JOURNAL

Updated June 24, 2004 12:01 a.m. ET

MONTREAL --
Air Canada
said it accepted a proposal by private-equity firm Cerberus Capital Management LP to invest 250 million Canadian dollars (US$184 million) for securities convertible into a 9.2% stake in the airline, advancing the carrier's long-running effort to restructure under bankruptcy-court protection.

Air Canada last year had chosen Hong Kong magnate Victor Li over Cerberus to become the lead equity investor in Canada's biggest airline. But Mr. Li in April pulled out of his deal to invest C$650 million for a 31% stake after Air Canada's labor unions refused to negotiate changes to their pension plans.

Since then,
Deutsche Bank AG
has agreed to backstop a C$850 million rights offering to Air Canada creditors. The Cerberus investment would be in addition to that offering, enabling the airline to raise a total of C$1.1 billion in new equity.

Air Canada Chief Executive Officer Robert Milton said the Cerberus deal has the support of the Montreal company's creditors and "represents another concrete step toward our emergence" from bankruptcy protection. The airline, operating under court protection since April 2003, now aims to emerge from that status by Sept. 30.

Brett Ingersoll, managing director of New York-based Cerberus, said that "our investment reflects Cerberus's confidence that Air Canada will emerge from this process as an airline-industry leader with true potential for profitability and growth."

The agreement calls for a Cerberus affiliate to invest C$250 million for convertible preference shares of Air Canada Enterprises, a new parent holding company to be incorporated. Those securities would be convertible into common shares, initially representing about a 9.2% stake, at the option of Cerberus under certain conditions.

The agreement is subject to approval by the Ontario court overseeing Air Canada's restructuring.